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June 21, 2016 | The Canada Pittance Plan

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

 

Recall the shocking numbers reported here the other day? You know the ones. Four in ten Toronto homebuyers with million-dollar houses have debt equal to at least 450% of what they make, and a majority are now taking 30-and 35-year amortizations. Why? Presumably because they can’t make the payments with typical am periods. Classic house-rich and cash-poor.

So if house prices drop, the debt doesn’t and they’re screwed. This is financial illiteracy at its core. It’s now epidemic. What, oh what, is a government to do?

A good start would be to do the opposite of the plan the feds and provs came up with Monday night. As you may have heard, the CPP’s just been diddled. Starting in 18 months, everyone will pay more in premiums for benefits that do not fully increase for almost a decade. The average monthly surcharge will be about $35 and the maximum pension benefit will increase $330 a month. Of course, most people don’t collect the full amount, but only 60% of it. The max the public plan will pay is $14,000 a year, starting in 2025. The average payout will be about $9,800, or $815 a month.

Why is this a largely useless exercise?

Well, business hates it. Employers must match every dollar an employee puts into the CPP and receive no benefit for doing so. With a torpid economy, groups like the Canadian Chamber of Commerce say this extra grab sucks. Additionally, contributions now stop after an employee earns more than $54,000, but that ceiling is jumping all the way to $83,000. Says the Canadian Federation of Independent Business: “This is a devastating move for Canadian workers and the economy in general.”

But the real Achilles heel comes with this statement from our finance minister, Bill Morneau: “We have come to a conclusion that we are going to improve the retirement security of Canadians, we’re going to improve the Canada Pension Plan that will make a real difference in future Canadians’ situations.” What a load.

The max CPP now is $12,456 a year, but the average person collects just $7,128. With the changes “that will make a real difference in future Canadians’ situation” the max will be almost $17,000, and the average $9,730. That’s $810 a month. Add in the OAS (at age 65) of $570, and the average annual pogey income becomes $16,560 (although it’s a safe bet the Old Age payment will be a bit higher in nine years).

So by saying this will “improve the retirement security of Canadians,” Bill and his provincial buds (all with defined benefit public pensions) are sending out a false message. Thirteen hundred bucks a month ain’t enough to retire on unless you’re a Chia Pet. This isn’t security. And don’t pretend the extra makes “a real difference” to anyone except (maybe) the destitute.

Meanwhile these same guys slashed the TFSA contribution limit by half, forever gutting the most effective, potent retirement-financing tool young working Canadians could hope to have. At the same time, the T2 gang is busy adding at least $120 billion in new federal debt over the course of just four years, money which will increase overhead and taxes, put upward pressure on future rates and hamstring subsequent governments. Suck. Blow. It all goes to the left-leaning view that individuals should be looked after by the state, instead of encouraged to do so themselves. This is how countries like Norway and Denmark got a 25% GST rate, plus high marginal tax.

Is there any good news? In Ontario, yeah. This means the end of a costly, duplicating parallel provincial pension system which already has a multi-billion-dollar admin in place headed by a public servant pulling down $500,000 (Saad Rafi). Ouch.

Anyway, here’s the new government pitch to people who borrow an $800,000 mortgage and use 100% of their savings to buy a house they don’t need and will never pay off: relax. We got your back. Invest in a hot tub and a Wolf six-burner. Use your TFSA, if necessary. This retirement thing is handled. Honest.

Some days I’m happy to be an old dude. What’s coming will be epic.

Now, speaking of the financially-challenged, I’ll bet you didn’t know we have a national Financial Literacy Leader. Well, we do. Her name is Jane Rooney and she’s currently seeking  “influential individuals” to join the National Steering Committee on Financial Literacy. To be appointed you must be taking action “to strengthen the knowledge, skills and confidence of Canadians to make responsible financial decisions.” Like this blog, of course, which uses ridicule, public shaming, condescension and questionable language suggesting sexual deviance in order to improve math skills.

Feeling like a nomination? Then go here. By the way, gender parity counts, says Jane. Dress accordingly.

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June 21st, 2016

Posted In: The Greater Fool

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